In the past few months, the global real estate market has experienced an ever increasing boom that is making investors and home owners alike very happy. It’s also a great time to recover losses for people who’ve managed to maintain their position right through the economic meltdown of ’08.
However, a lot of analysts predict that this real estate boom will most likely go bust in the next several months leading to a hard-hitting economic slump. This leads us to Australia, a market that many consider to be the catalyst of this change and one that will most likely provide the initial markers of disaster. Read on to find out why Australia’s property market is currently in a housing bubble and what this means for global markets.
Australia’s Sizzling Real Estate Market
Australia is on the watch-list as one of the leading indicators of international market trends because it’s the only country that has managed to sustain the same level of growth for as long as it has. To put this into context, consider the fact that the city of Sydney in Australia has reported 3.5% annual price increase since the year 1980.
History tells us that no other major real estate market in the world has managed to maintain this level of growth, which means that the Australian market is due for a slump at some point the future. After all, what goes up must come down.
In fact, there have been some real red herrings in the Australian real estate market due to what many believe to be overheating. For example, the city of Sydney, Australia has held a 1.80 risk score on the UBS Global Real Estate Bubble Index for quite some time, which is an indicator that on a global scale, it is one of the riskiest markets around.
Meanwhile, the Australian dollar has been steadily plummeting against the American dollar since the beginning of 2018, and that is never a good sign.
In Australia, property prices always seem to be on the up and up, and there’s never a shortage of customers that are willing to snap up available properties up from eager real estate agents. However, in recent months real estate prices in the Sydney real estate market have actually started falling for the first time in a long time.
This is mainly due to the mass exodus of foreign investors who’ve pretty much been the backbone of Australia’s steadily growing real estate market. These events have obviously made the property market a bit more accessible to native-born Australians who were previously unable to access it due to low wages. Meanwhile, banks are also staring to relax their lending terms and have drastically decreased interest rates in order to accommodate the needs of the local demand, and most home builders have pretty much halted their activity in anticipation that the housing bubble is about to burst.
As you may have noticed, the above-mentioned scenario sounds eerily similar to what happened in the U.S. real estate market in the months leading up to the great 2008 market crash. Not only are these indicators useful for Australian real estate investors who are reevaluating their position, but it is also an indicator of what is to likely follow in other major markets.
Consequences on Global Markets
It is safe to assume that the downfall of the Australian real estate market will have consequences on global markets. In fact, the International Monetary Fund recently released a study which showed that a global shift is happening in all major real estate markets around the globe, which are occurring as a result of decreased foreign investment.
At the end of the day, foreign investors are a fickle breed and will leave a market at the drop of a pin if there are signs of trouble, as is the case in Australia right now. We saw the same thing happen in Canada when real estate prices saw a dramatic shift from high to low almost overnight.
As foreign investors flock to the U.S. market, it’s not too far –fetched to assume that the pendulum will shift once again causing the economy to reach yet another major turning point that will be accompanied by a hard fall. So it might be a good idea for investors to start reconsidering their positions and pay attention to the situation happening in the Australian real estate market, as it most probably heralds the beginning of what will become a global wave that will sweep across all major markets.